A confluence of positives—some company-specific and others much bigger—drove the recent jump. Most dramatic is the flood of assets lately into the
WisdomTree Japan Hedged Equitydxj -0.6452802359882006%WisdomTree Japan Hedged Equity FundU.S.: NYSE Arca53.89
-0.35-0.6452802359882006%
/Date(1425420000264-0600)/
Volume (Delayed 15m)
:
3270856AFTER HOURS53.85
-0.0399999999999992-0.07422527370569679%
Volume (Delayed 15m)
:
P/E Ratio
N/AMarket Cap
N/A
Dividend Yield
2.929300426795324% Rev. per Employee
N/AMore quote details and news »dxjinYour ValueYour ChangeShort position
(DXJ), which hardly anybody was expecting. The fund has added $1.8 billion in fresh money since the New Year as the Bank of Japan wrestles with the yen, pushing stocks to multi-year highs. Meanwhile, safe passage past the "fiscal cliff" drove money back into dividend-themed funds. All this came after a few ostensibly negative developments for the company wrapped up: The completion of two share offerings, including big insider sales, and the dropping of a patent lawsuit by fundamental indexer Research Affiliates.

Thanks to its rapid growth, WisdomTree is richly valued, trading at 30 times forward earnings and 5% of assets. BlackRock trades at about 1% of assets. Wall Street analysts justify it, predicting a doubling of pre-tax operating margins, to 40%, by 2014, amid another massive asset surge. The price may also reflect a buyout premium, though industry watchers view it as less likely these days. "It's a harder pill to swallow here," says Index Universe head of ETF analytics Matt Hougan.

Sure, the asset surge and ramp in earnings could happen. But step back a moment. Just about every investor is aware of the ETF market's assault on the mutual-fund industry. Those who hope to ride ETF companies as an investment have to pack their hopes into one pure-play, small-cap stock. Analysts who are bullish on WisdomTree call it the "scarcity" factor. "Investors often tell us it's why they're looking at us," says a company insider. CEO Jonathan Steinberg wasn't made available for an interview.

WisdomTree's stock might be a safer bet if there were other publicly traded competitors in which to cram the industry optimism. But there aren't. So investors must be comfortable with a mix of ETF hopes, macroeconomic factors, and the firm's impressive asset gathering. "Cheap stocks can get cheaper, and expensive stocks can get more expensive," says Citigroup's William R. Katz, a bull who thinks shares could reach $12. But at these levels, it would require a fresh gust of ETF optimism, at a time when lots of good things are already happening.